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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: SEPTEMBER 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-22387
-----------
DCB FINANCIAL CORP.
-----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
OHIO 31-1469837
- --------------------------------- ------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
110 RIVERBEND AVENUE, LEWIS CENTER, OHIO 43035
----------------------------------------------
(Address of principal executive offices)
(740) 657-7000
-------------------------------
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the past 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
X Yes No
----------- -----------
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Common stock, no par value Outstanding at October 29, 2001:
4,178,200 common shares
DCB FINANCIAL CORP.
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2001
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Table of Contents
PART I - FINANCIAL INFORMATION
ITEM 1 - Financial Statements PAGE
----
Consolidated Balance Sheets............................................... 3
Consolidated Statements of Income......................................... 4
Consolidated Statements of Comprehensive Income........................... 5
Condensed Consolidated Statements of Changes in
Shareholders' Equity................................................. 6
Condensed Consolidated Statements of Cash Flows........................... 7
Notes to the Consolidated Financial Statements............................ 8
ITEM 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 13
ITEM 3 - Quantitative and Qualitative Disclosures About Market Risk....... 19
PART II - OTHER INFORMATION............................................... 20
SIGNATURES................................................................ 21
DCB FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
- --------------------------------------------------------------------------------
Item 1. FINANCIAL STATEMENTS
(Dollars in thousands) September 30, December 31,
2001 2000
---- ----
ASSETS
Cash and due from banks $ 16,828 $ 17,797
Federal funds sold 1,130 700
------------- --------------
Total cash and cash equivalents 17,958 18,497
Securities available for sale 86,807 101,955
Securities held to maturity (estimated fair values of $35,641 at
September 30, 2001 and $29,956 at December 31, 2000) 34,742 29,843
Loans and leases 351,801 331,522
Less allowance for loan and lease losses (3,513) (3,334)
------------- --------------
Net loans and leases 348,287 328,188
Premises and equipment, net 12,139 8,503
Investment in unconsolidated affiliate 1,931 1,931
Accrued interest receivable and other assets 10,081 8,228
------------- --------------
Total assets $ 511,945 $ 497,145
============= ==============
LIABILITIES
Deposits
Noninterest-bearing $ 62,280 $ 62,710
Interest-bearing 361,525 356,235
------------- --------------
Total deposits 423,805 418,945
Borrowed funds 35,262 30,422
Accrued interest payable and other liabilities 3,706 2,879
------------- --------------
Total liabilities 462,773 452,246
SHAREHOLDERS' EQUITY
Common stock, no par value, 7,500,000 shares authorized,
4,273,200 shares issued 3,779 3,779
Retained earnings 46,365 43,475
Treasury stock, 95,000 shares, at cost (1,978) (1,978)
Accumulated other comprehensive income (loss) 1,006 (377)
------------- --------------
Total shareholders' equity 49,172 44,899
------------- --------------
Total liabilities and shareholders' equity $ 511,945 $ 497,145
============= ==============
- --------------------------------------------------------------------------------
See notes to the consolidated financial statements.
3.
DCB FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
- --------------------------------------------------------------------------------
(Dollars in thousands, Three Months Ended Nine Months Ended
except per share data) September 30, September 30,
------------- -------------
2001 2000 2001 2000
---- ---- ---- ----
INTEREST INCOME
Loans, including fees $ 6,761 $ 7,115 $ 21,122 $ 19,849
Securities
Taxable 1,729 2,028 5,510 5,795
Nontaxable 138 138 395 419
Fed funds sold and other 73 57 259 142
--------------- -------------- -------------- ---------------
Total interest income 8,701 9,338 27,286 26,205
--------------- -------------- -------------- ---------------
INTEREST EXPENSE
Deposits 3,477 4,796 11,750 12,966
Borrowings 542 485 1,511 1,072
--------------- -------------- -------------- ---------------
Total interest expense 4,019 5,281 13,261 14,038
--------------- -------------- -------------- ---------------
NET INTEREST INCOME 4,682 4,057 14,025 12,167
Provision for loan and lease losses 242 100 572 602
--------------- -------------- -------------- ---------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN AND LEASE LOSSES 4,440 3,957 13,453 11,565
NONINTEREST INCOME
Service charges on deposit accounts 583 532 1,709 1,532
Trust department income 119 88 446 281
Securities gains (losses) -- 2 -- (21)
Net gain from sales of loans 101 50 513 127
Data service fees 69 63 230 201
Other 466 522 1,116 1,229
--------------- -------------- -------------- ---------------
Total noninterest income 1,338 1,257 4,014 3,349
NONINTEREST EXPENSE
Salaries and other employee benefits 2,098 1,648 6,005 4,823
Equipment 446 340 1,212 1,074
Occupancy 472 244 1,146 736
State franchise taxes 130 129 389 387
Other 1,101 945 2,927 2,673
--------------- -------------- -------------- ---------------
Total noninterest expenses 4,247 3,306 11,679 9,693
--------------- -------------- -------------- ---------------
INCOME BEFORE INCOME TAXES 1,531 1,908 5,788 5,221
Provision for income taxes 581 620 1,979 1,651
--------------- -------------- -------------- ---------------
NET INCOME $ 950 $ 1,288 $ 3,809 $ 3,570
=============== ============== ============== ===============
EARNINGS PER COMMON SHARE $ 0.23 $ 0.30 $ 0.91 $ 0.85
=============== ============== ============== ===============
- --------------------------------------------------------------------------------
See notes to the consolidated financial statements.
4.
DCB FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
- --------------------------------------------------------------------------------
(Dollars in thousands) Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2001 2000 2001 2000
---- ---- ---- ----
NET INCOME $ 950 $ 1,288 $ 3,809 $ 3,570
OTHER COMPREHENSIVE INCOME, NET OF TAX
Unrealized gain/(loss) on available-
for-sale securities arising during
the period 415 597 1,383 (9)
Reclassification adjustment for
amounts realized on securities
sales included in net income -- (1) -- 14
--------------- --------------- -------------- ---------------
Total other comprehensive income 415 596 1,383 5
--------------- -------------- -------------- ---------------
COMPREHENSIVE INCOME $ 1,365 $ 1,884 $ 5,192 $ 3,575
=============== ============== ============== ===============
- --------------------------------------------------------------------------------
See notes to the consolidated financial statements.
5.
DCB FINANCIAL CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
(Unaudited)
- --------------------------------------------------------------------------------
(Dollars in thousands, except per share data) Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2001 2000 2001 2000
---- ---- ---- ----
Balance at beginning of period $ 48,140 $ 41,493 $ 44,899 $ 40,387
Net income 950 1,288 3,809 3,570
Dividends declared ($.08 and $.22 per share in
2001 and $.07 and $.21 per share in 2000) (335) (292) (919) (877)
Change in unrealized gain/loss on
securities available for sale, net of tax 415 596 1,383 5
----------- ----------- ----------- -----------
Balance at end of period $ 49,172 $ 43,085 $ 49,172 $ 43,085
=========== =========== =========== ===========
- --------------------------------------------------------------------------------
See notes to the consolidated financial statements.
6.
DCB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands)
- --------------------------------------------------------------------------------
(Dollars in thousands) Nine Months Ended
September 30,
2001 2000
---- ----
NET CASH FLOWS FROM OPERATING ACTIVITIES $ 2,593 $ 1,614
CASH FLOWS FROM INVESTING ACTIVITIES
Securities available for sale:
Purchases (37,045) (40,550)
Maturities and repayments 7,461 6,156
Proceeds from sales and calls 46,921 23,489
Securities held to maturity:
Purchases (12,234) (2,846)
Maturities and repayments 7,253 6,003
Net change in loans (19,752) (48,226)
Proceeds from sale of premises and equipment 50 --
Premises and equipment expenditures (4,567) (2,801)
----------- -----------
Net cash from investing activities (11,913) (58,775)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits 4,860 50,700
Net change in short-term borrowings 118 14,000
Proceeds from long-term borrowings 5,000 --
Repayment of long-term borrowings (278) (264)
Cash dividends paid (919) (877)
----------- -----------
Net cash from financing activities 8,781 63,559
----------- -----------
Net change in cash and cash equivalents (539) 6,398
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 18,497 16,838
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 17,958 $ 23,236
=========== ===========
SUPPLEMENTAL DISCLOSURES
Cash paid for income taxes $ 1,696 $ 1,847
Cash paid for interest 13,541 13,416
- --------------------------------------------------------------------------------
See notes to the consolidated financial statements.
7.
DCB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands)
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These interim financial statements are prepared without audit and reflect all
adjustments which, in the opinion of management, are necessary to present fairly
the financial position of DCB Financial Corp. (the "Corporation") at September
30, 2001, and its results of operations and cash flows for the periods
presented. All such adjustments are normal and recurring in nature. The
accompanying consolidated financial statements have been prepared in accordance
with the instructions of Form 10-Q and, therefore, do not purport to contain all
necessary financial disclosures required by accounting principles generally
accepted in the United States of America that might otherwise be necessary in
the circumstances, and should be read in conjunction with financial statements,
and notes thereto, of the Corporation for the year ended December 31, 2000,
included in its 2000 annual report. Refer to the accounting policies of the
Corporation described in the notes to financial statements contained in the
Corporation's 2000 annual report. The Corporation has consistently followed
these policies in preparing this Form 10-Q.
The accompanying consolidated financial statements include the accounts of the
Corporation and its wholly-owned subsidiary, The Delaware County Bank and Trust
Company (the "Bank"). The financial statements of the Bank include accounts of
its wholly-owned subsidiaries, D.C.B. Corporation and 362 Corp. All significant
intercompany accounts and transactions have been eliminated in consolidation.
The Corporation's revenues, operating income and assets are primarily from the
banking line of business. The Corporation operates 16 banking offices in
Delaware, Franklin and Union Counties, Ohio. Loan customers include a wide range
of individuals, businesses and other organizations. A significant portion of the
loan portfolio is secured with various forms of collateral including real
estate, business assets, consumer property and other items. The Corporation's
primary funding source is deposits from customers in its market area. The
Corporation also purchases investments, performs trust services and engages in
mortgage banking operations.
To prepare financial statements in conformity with accounting principles
generally accepted in the United States of America, management makes estimates
and assumptions based on available information. These estimates and assumptions
affect amounts reported in the financial statements and disclosures provided,
and future results could differ. The collectibility of loans, fair value of
financial instruments and status of contingencies are particularly subject to
change.
Income tax expense is the sum of current-year income tax due or refundable and
the change in deferred tax assets and liabilities. Deferred tax assets and
liabilities are the expected future tax amounts of temporary differences between
carrying amounts and tax bases of assets and liabilities computed using enacted
tax rates. A valuation allowance, if needed, reduces deferred tax assets to the
amount expected to be realized.
Earnings per common share is net income divided by the weighted average number
of shares of common stock outstanding during the period. The weighted average
number of common shares outstanding was 4,178,200 for the three and nine months
ended September 30, 2001 and 2000. The Corporation does not have any shares that
could potentially dilute their earnings per common share computation.
- --------------------------------------------------------------------------------
(Continued)
8.
DCB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands)
- --------------------------------------------------------------------------------
NOTE 2 - SECURITIES
The amortized cost and estimated fair values of securities were as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-----------------September 30, 2001---------------
SECURITIES AVAILABLE FOR SALE
U.S. Treasury $ 1,002 $ 5 $ -- $ 1,007
U.S. government agencies
and corporations 42,856 865 (2) 43,719
States and political subdivisions 7,078 70 (24) 7,124
Mortgage-backed securities 32,235 655 (55) 32,835
---------- ---------- ---------- ----------
Total debt securities 83,171 1,595 (81) 84,685
Other securities 2,112 10 - 2,122
---------- ---------- ---------- ----------
Total securities available for sale $ 85,283 $ 1,605 $ (81) $ 86,807
========== ========== ========== ==========
SECURITIES HELD TO MATURITY
States and political subdivisions $ 6,489 $ 193 $ (2) $ 6,680
Mortgage-backed securities 28,123 706 (1) 28,828
Corporate bonds 130 3 -- 133
---------- ---------- ---------- ----------
Total securities held to maturity $ 34,742 $ 902 $ (3) $ 35,641
========== ========== ========== ==========
------------------December 31, 2000---------------
SECURITIES AVAILABLE FOR SALE
U.S. Treasury $ 1,012 $ 4 $ -- $ 1,016
U.S. government agencies
and corporations 60,958 205 (480) 60,683
States and political subdivisions 6,175 2 (106) 6,071
Mortgage-backed securities 32,339 128 (326) 32,141
---------- ---------- ---------- ----------
Total debt securities 100,484 339 (912) 99,911
Other securities 2,038 6 -- 2,044
---------- ---------- ---------- ----------
Total securities available for sale $ 102,522 $ 345 $ (912) $ 101,955
========== ========== ========== ==========
SECURITIES HELD TO MATURITY
States and political subdivisions $ 5,727 $ 103 $ (36) $ 5,794
Mortgage-backed securities 24,116 138 (92) 24,162
---------- ---------- ---------- ----------
Total securities held to maturity $ 29,843 $ 241 $ (128) $ 29,956
========== ========== ========== ==========
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(Continued)
9.
DCB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands)
- --------------------------------------------------------------------------------
NOTE 2 - SECURITIES (Continued)
Substantially all mortgage-backed securities are backed by pools of mortgages
that are insured or guaranteed by the Federal National Mortgage Association
("FNMA"), the Government National Mortgage Association ("GNMA") and the Federal
Home Loan Mortgage Corporation ("FHLMC").
At September 30, 2001, there were no holdings of securities of any one issuer,
other than the U.S. government and its agencies, in an amount greater than 10%
of shareholders' equity.
The amortized cost and estimated fair value of debt securities at September 30,
2001, by contractual maturity, are shown below. Actual maturities may differ
from contractual maturities because issuers may have the right to call or prepay
obligations. Mortgage-backed securities are shown separately since they are not
due at a single maturity date.
Available for Sale Held to Maturity
------------------ ----------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---- ----- ---- -----
Due in one year or less $ 2,130 $ 2,149 $ 1,255 $ 1,264
Due from one to five years 4,732 4,881 3,314 3,463
Due from five to ten years 26,447 26,947 323 331
Due after ten years 17,627 17,873 1,727 1,755
Mortgage-backed securities 32,235 32,835 28,123 28,828
Other securities 2,112 2,122 -- --
---------- ---------- --------- ----------
$ 85,283 $ 86,807 $ 34,742 $ 35,641
========== ========== ========= ==========
Sales and calls of securities available for sale were as follows:
Three Months Ended Nine Months Ended
September September
2001 2000 2001 2000
---- ---- ---- ----
Proceeds $ 10,623 $ 2,839 $ 46,921 $ 23,489
Gross gains -- 4 4 10
Gross losses -- 2 4 31
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(Continued)
10.
DCB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands)
- --------------------------------------------------------------------------------
NOTE 3 - LOANS AND LEASES
Loans and leases consisted of the following:
September 30, December 31,
2001 2000
---- ----
Commercial and industrial $ 52,568 $ 48,447
Commercial real estate 115,140 101,891
Residential real estate and home equity 86,558 85,820
Real estate construction and land development 34,328 32,493
Consumer and credit card 53,791 52,149
Lease financing, net 9,416 10,722
----------- ------------
$ 351,801 $ 331,522
=========== ============
Included in residential real estate and home equity loans are loans held for
sale of $2,024 at September 30, 2001 and $1,105 at December 31, 2000.
NOTE 4 - ALLOWANCE FOR LOAN AND LEASE LOSSES
Activity in the allowance for loan and lease losses for the three and nine
months ended September 30, 2001 and 2000 is as follows:
Three months ended Nine months ended
September 30, September 30,
------------- -------------
2001 2000 2001 2000
---- ---- ---- ----
Beginning balance $ 3,497 $ 3,131 $ 3,334 $ 2,793
Provision for loan losses 242 100 572 602
Loans charged off (274) (101) (504) (331)
Recoveries 48 36 111 102
------------ ------------ ------------ ------------
Balance $ 3,513 $ 3,166 $ 3,513 $ 3,166
============ ============ ============ ============
Impaired loans were as follows:
September 30, December 31,
2001 2000
---- ----
Period-end impaired loans with no allowance for loan
losses allocated $ 518 $ --
Period-end impaired loans with allowance for loan
losses allocated 1,388 469
Amount of the allowance allocated to impaired loans 648 200
- --------------------------------------------------------------------------------
(Continued)
11.
DCB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands)
- --------------------------------------------------------------------------------
NOTE 5 - CONCENTRATIONS OF CREDIT RISK AND FINANCIAL INSTRUMENTS
WITH OFF-BALANCE SHEET RISK
Various contingent liabilities are not reflected in the financial statements,
including claims and legal actions arising in the ordinary course of business.
In the opinion of management, after consultation with legal counsel, the
ultimate disposition of these matters is not expected to have a material effect
on financial condition or results of operations.
The Corporation grants residential, consumer, and commercial loans to customers
located primarily in Delaware, Franklin, Union and surrounding counties in Ohio.
Most loans are secured by specific items of collateral including business
assets, consumer assets and real estate.
The Bank is a party to financial instruments with off-balance sheet risk in the
normal course of business to meet financing needs of its customers. The contract
amounts of these instruments are not included in the consolidated financial
statements. At September 30, 2001 and December 31, 2000, the contract amount of
these instruments, which primarily include commitments to extend credit and
standby letters of credit, totaled approximately $44,778 and $71,885. Of these
commitments, fixed-rate commitments totaled $2,962 and $4,049 at September 30,
2001 and December 31, 2000. Since many commitments to make loans expire without
being used, the amount does not represent future cash commitments.
The exposure to credit loss in the event of nonperformance by the other party to
the financial instrument for commitments to make loans and lines and letters of
credit is represented by the contractual amount of those instruments. The
Corporation follows the same credit policy to make such commitments as is
followed for those loans recorded in the financial statements. In management's
opinion, these commitments represent normal banking transactions and no material
losses are expected to result therefrom. Collateral obtained upon exercise of
the commitments is determined using management's credit evaluations of the
borrower and may include real estate, business or consumer assets.
- --------------------------------------------------------------------------------
(Continued)
12.
DCB FINANCIAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)
- --------------------------------------------------------------------------------
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
In the following pages, management presents an analysis of the consolidated
financial condition of the Corporation at September 30, 2001 compared to
December 31, 2000, and the consolidated results of operations for the three and
nine months ended September 30, 2001 compared to the same periods in 2000. This
discussion is designed to provide shareholders with a more comprehensive review
of the operating results and financial position than could be obtained from an
examination of the financial statements alone. This analysis should be read in
conjunction with the financial statements and related footnotes and the selected
financial data included elsewhere in this report.
FORWARD-LOOKING STATEMENTS
When used in this document, the words or phrases "will likely result," "are
expected to," "will continue," "is anticipated," "estimated," "projected," or
similar expressions are intended to identify "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are subject to certain risks and uncertainties including changes in
economic conditions in the Corporation's market area, changes in policies by
regulatory agencies, fluctuations in interest rates, demand for loans in the
Corporation's market area and competition, that could cause actual results to
differ materially from historical earnings and those presently anticipated or
projected. Factors listed above could affect the Corporation's financial
performance and could cause the Corporation's actual results for future periods
to differ materially from any statements expressed with respect to future
periods.
The Corporation does not undertake, and specifically disclaims any obligation,
to publicly revise any forward-looking statements to reflect events or
circumstances after the date of such statements or to reflect the occurrence of
anticipated or unanticipated events.
ANALYSIS OF FINANCIAL CONDITION
The Corporation's assets totaled $511,945 at September 30, 2001, compared to
$497,145 at December 31, 2000, an increase of $14,800, or 3.0%. The growth in
assets was primarily the result of increases in loans and leases and partially
offset by a decrease in securities Such growth in assets was funded by increased
deposits and borrowings from the FHLB.
Cash and cash equivalents decreased approximately $539 from December 31, 2000 to
September 30, 2001, as excess cash and the proceeds from investment maturities
were used to fund the loan portfolio increase.
- --------------------------------------------------------------------------------
13.
DCB FINANCIAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)
- --------------------------------------------------------------------------------
Total securities decreased $10,249, or 7.8%, from $131,798 at December 31, 2000
to $119,511 at September 30, 2001, primarily due to increased calls of
securities resulting from decreasing interest rates. The decrease was the result
of the proceeds from sales, maturities, calls and principal repayments not being
reinvested in similar type securities, and instead used to fund the increase in
loan demand. The Corporation invests primarily in U.S. Treasury notes, U.S.
government agencies, municipal bonds, corporate obligations and mortgage-backed
securities. Mortgage-backed securities include Federal Home Loan Mortgage
Corporation ("FHLMC"), Government National Mortgage Association ("GNMA") and
Federal National Mortgage Association ("FNMA") participation certificates.
Securities classified as available for sale totaled $86,807, or 71.4% of the
total securities portfolio, at September 30, 2001. Management classifies
securities as available for sale to provide the Corporation with the flexibility
to supply liquidity as demand warrants. The mortgage-backed securities
portfolio, totaling $60,958 at September 30, 2001, provides the Corporation with
an ongoing cash flow stream from principal repayments. The Corporation held no
derivative securities or structured notes during any period presented.
Total gross loans increased $20,279, or 6.1%, from $331,522 at December 31, 2000
to $351,801 at September 30, 2001. The majority of the growth was experienced in
commercial real estate and commercial and industrial loans which increased
$13,249, or 13.0%, and $4,121, or 8.5%, respectively. The Corporation attributes
this growth to a strong local economy and the large number of businesses moving
into the market area. There is no significant concentration of lending to any
one industry.
The gross loan to deposit ratio increased to 83.0% at September 30, 2001,
compared to 79.1% at December 31, 2000.
Total deposits increased $4,860, or 1.2%, from $418,945 at December 31, 2000 to
$423,805 at September 30, 2001. Non-interest-bearing deposits decreased $430, or
.7%, while interest-bearing deposits increased $5,290, or 1.5%. Interest-bearing
demand and money market deposits comprised 52.4% of total interest-bearing
deposits at September 30, 2001 compared to 56.1% of total interest-bearing
deposits at December 31, 2000. The decrease was primarily attributed to a slight
run-off in money market accounts and an increase in time deposits. This change
comes as a result of restricting access of certain money market accounts to new
bank customers. Certificates of deposits comprised 30.1% of total
interest-bearing deposits at September 30, 2001 compared to 32.1% of total
interest-bearing deposits at December 31, 2000.
Total borrowed funds increased $4,840, or 15.9%, from $30,422 at December 31,
2000 to $35,262 at September 30, 2001. The increase in borrowed funds was
primarily utilized to fund loan growth and for other financing activities. At
September 30, 2001 borrowed funds consisted primarily of three FHLB advances of
$10,000, $15,000, $5,000 and a mortgage-matched advance from the FHLB with a
remaining balance of $3,257. Due in October 2001, the $10,000 FHLB advance had
an original term of 12 months and carries a fixed interest rate of 6.72% with
interest due monthly. Due in February 2002, the $15,000 FHLB advance had an
original term of 15 months and carries a rate of 6.67% with interest due
monthly. Due in May 2011, the $5,000 FHLB advance had an original term of 10
years and carries a rate of 5.5% for the first 5 years and will float at Libor
quarterly for the last 5 years. Due in October 2008, the mortgage-matched
advance had an original term of 10 years and carries a fixed interest rate of
5.10%. Principal and interest on the mortgage-matched advance are due monthly.
Borrowed funds also include a demand note issued to the U.S. Treasury, which
totaled $2,004 at September 30, 2001.
- --------------------------------------------------------------------------------
14.
DCB FINANCIAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)
- --------------------------------------------------------------------------------
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS
ENDED SEPTMEBER 30, 2001 AND SEPTEMBER 30, 2000
NET INCOME. Net income for the three months ended September 30, 2001 totaled
$950, compared to net income of $1,288 for the same period in 2000. Earnings per
share was $0.23 for the three months ended September 30, 2001 compared to $0.30
for the three months ended September 30, 2000.
NET INTEREST INCOME. Net interest income represents the amount by which interest
income on interest-earning assets exceeds interest paid on interest-bearing
liabilities. Net interest income is the largest component of the Corporation's
income and is affected by the interest rate environment and the volume and
composition of interest-earning assets and interest-bearing liabilities.
Net interest income was $4,682 for the three months ended September 30, 2001
compared to $4,057 for the same period in 2000. The $625 increase in 2001 over
2000 was the result of an increased volume of interest-earning assets partially
offset by an increase in interest-bearing liabilities that carried a higher
average yield. Management has elected to offer attractive, competitive rates to
retain deposits, provided the funds can be invested in income-earning assets
with adequate yields.
PROVISION AND ALLOWANCE FOR LOAN AND LEASE LOSSES. The provision for loan and
lease losses represents the charge to income necessary to adjust the allowance
for loan and lease losses to an amount that represents management's assessment
of the probable incurred credit losses in the Corporation's loan and lease
portfolio. All lending activity contains associated risks of losses and the
Corporation recognizes these credit risks as a necessary element of its business
activity. To assist in identifying and managing potential loan losses, the
Corporation maintains a loan review function that regularly evaluates individual
credit relationships as well as overall loan-portfolio conditions. One of the
primary objectives of this loan review function is to make recommendations to
management as to both specific loss reserves and overall portfolio loss
reserves.
The provision for loan and lease losses totaled $242 for the three months ended
September 30, 2001 compared to $100 for the same period in 2000. The growth in
the provision is reflective of the overall growth in the Corporation's loan
portfolio as well as an increase in net charge-offs between the two periods. Net
charge-offs for the three months ended September 30, 2001 were $226 compared to
net charge-offs of $65 for the same period in 2000.
The allowance for loan and lease losses totaled $3,513, or 1.0% of total loans
and leases, at September 30, 2001 compared to $3,334, or 1.01% of total loans
and leases, at December 31, 2000. The allowance was 100.2% of non-performing
loans at September 30, 2001, compared to 224.81% at December 31, 2000.
NONINTEREST INCOME AND NONINTEREST EXPENSE. Total noninterest income increased
$81, or 6.4%, for the three months ended September 30, 2001 compared to the same
period in 2000. The increase in non-interest income was the result of an
increase in fees from the Corporation's trust department due to an increase in
the total amount of trust assets managed and increased gains on loan sales
resulting from changes in the interest rate environment.
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15.
DCB FINANCIAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)
- --------------------------------------------------------------------------------
Total noninterest expense increased $941, or 28.5%, for the three months ended
September 30, 2001 compared to the same period in 2000. The increase was
primarily the result of increases in salaries and employee benefits of $450,
equipment expense of $106, and occupancy expense of $228. The majority of these
increases resulted from the construction of the Company's new headquarters.
These were planned increases necessary to support the continued growth of the
Corporation and will continue to be at these higher levels in the future. Other
changes in noninterest expense were not significant.
INCOME TAXES. The volatility of income tax expense is primarily attributable to
the change in income before income taxes. The provision for income taxes totaled
$581, for an effective tax rate of 37.9%, for the three months ended September
30, 2001 and $620, for an effective tax rate of 32.5%, for the three months
ended September 30, 2000.
COMPARISON OF RESULTS OF OPERATIONS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000
NET INCOME. Net income for the nine months ended September 30, 2001 totaled
$3,809, compared to net income of $3,570 for the same period in 2000. Earnings
per share was $0.91 for the nine months ended September 30, 2001 compared to
$0.85 for the nine months ended September 30, 2000.
NET INTEREST INCOME. Net interest income was $14,025 for the nine months ended
September 30, 2001 compared to $12,167 for the same period in 2000. The $1,858
increase in 2001 over 2000 was the result of an increased volume of
interest-earning assets partially offset by an increase in interest-bearing
liabilities that carried a higher average yield. Management has elected to offer
attractive, competitive rates to retain deposits, provided the funds can be
invested in income-earning assets with adequate yields.
PROVISION AND ALLOWANCE FOR LOAN AND LEASE LOSSES. The provision for loan and
lease losses totaled $572 for the nine months ended September 30, 2001 compared
to $602 for the same period in 2000. The decrease in the provision is reflective
of management's belief that the overall quality of the loan portfolio increased
over the comparable period, partially offset by growth in the loan portfolio.
Net charge-offs for the nine months ended September 30, 2001 were $393 compared
to net charge-offs of $229 for the same period in 2000.
NONINTEREST INCOME AND NONINTEREST EXPENSE. Total noninterest income increased
$665, or 19.9%, for the nine months ended September 30, 2001 compared to the
same period in 2000. The increase was the result of an increase in fees from the
Corporation's trust department due to an increase in the amount of trust assets
managed, increased gains on loan sales and an increase in service charges on
deposit accounts.
Total noninterest expense increased $1,986, or 20.5%, for the nine months ended
September 30, 2001 compared to the same period in 2000. The increase was
primarily the result of increases in salaries and employee benefits of $1,182,
equipment expense of $138, and occupancy expense of $410. The majority of these
increases resulted from the construction of the Company's new headquarters.
These were planned increases necessary to support the continued growth of the
Corporation. Other changes in noninterest expense were not significant.
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16.
DCB FINANCIAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)
- --------------------------------------------------------------------------------
INCOME TAXES. The volatility of income tax expense is primarily attributable to
the change in income before income taxes. The provision for income taxes totaled
$1,979, for an effective tax rate of 34.2%, for the nine months ended September
30, 2001 and $1,651, for an effective tax rate of 31.6%, for the nine months
ended September 30, 2000.
LIQUIDITY
Liquidity is the ability of the Corporation to fund customers' needs for
borrowing and deposit withdrawals. The purpose of liquidity management is to
assure sufficient cash flow to meet all of the financial commitments and to
capitalize on opportunities for business expansion. This ability depends on the
institution's financial strength, asset quality and types of deposit and
investment instruments offered by the Corporation to its customers. The
Corporation's principal sources of funds are deposits, loan and security
repayments, maturities of securities, sales of securities available for sale and
other funds provided by operations. The Bank also has the ability to borrow from
the FHLB. While scheduled loan repayments and maturing investments are
relatively predictable, deposit flows and early loan and mortgage-backed
security prepayments are more influenced by interest rates, general economic
conditions, and competition. The Corporation maintains investments in liquid
assets based upon management's assessment of (1) need for funds, (2) expected
deposit flows, (3) yields available on short-term liquid assets and (4)
objectives of the asset/liability management program.
Cash and cash equivalents decreased $539, or 2.9%, to $17,958 at September 30,
2001 compared to $18,497 at December 31, 2000. Cash and equivalents represented
3.5% of total assets at September 30, 2001 and 3.7% of total assets at December
31, 2000. The Corporation has the ability to borrow funds from the Federal Home
Loan Bank and has various federal fund sources from correspondent banks, should
the Corporation need to supplement its future liquidity needs in order to meet
loan demand or to fund investment opportunities. Management believes the
Corporation's liquidity position is strong based on its high level of cash, cash
equivalents, core deposits, the stability of its other funding sources and the
support provided by its capital base.
CAPITAL RESOURCES
Total shareholders' equity increased $4,273 between December 31, 2000 and
September 30, 2001. The increase was due to earnings retained and an increase in
accumulated other comprehensive income. The Corporation purchased no shares of
treasury stock during the nine months ended September 30, 2001; however,
management may purchase additional shares in the future, as opportunities arise.
The number of shares to be purchased and the price to be paid will depend upon
the availability of shares, the prevailing market prices and any other
considerations, which may, in the opinion of the Corporation's Board of
Directors or management, affect the advisability of purchasing shares.
Tier 1 capital is shareholders' equity excluding the unrealized gain or loss on
securities classified as available for sale and intangible assets. Total capital
includes Tier 1 capital plus the allowance for loan losses, not to exceed 1.25%
of risk weighted assets. Risk weighted assets are the Corporation's total assets
after such assets are assessed for risk and assigned a weighting factor defined
by regulation based on their inherent risk.
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17.
DCB FINANCIAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)
- --------------------------------------------------------------------------------
At September 30, 2001 and December 31, 2000, the Corporation's actual capital
levels (in thousands) and minimum required levels were:
Minimum Required
To Be Well
Minimum Required Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Regulations
------ ----------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
September 30, 2001
- -------------------
Total capital (to risk-weighted assets)
Corporation $ 51,691 12.7% $ 32,538 8.0% $ 40,673 10.0%
Tier 1 capital (to risk-weighted assets)
Corporation 48,167 11.8 16,269 4.0 24,404 6.0
Tier 1 capital (to average assets)
Corporation 48,167 9.6 20,120 4.0 25,150 5.0
December 31, 2000
- ------------------
Total capital (to risk-weighted assets)
Corporation $ 48,718 13.7% $ 28,477 8.0% $ 35,596 10.0%
Tier 1 capital (to risk-weighted assets)
Corporation 45,381 12.8 14,238 4.0 21,357 6.0
Tier 1 capital (to average assets)
Corporation 45,381 9.5 19,035 4.0 23,794 5.0
IMPACT OF NEW ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 141. "Business Combinations." SFAS
No. 141 requires all business combinations within its scope to be accounted for
using the purchase method, rather than the pooling-of-interests method. The
provisions of this Statement apply to all business combinations initiated after
June 30, 2001. The adoption of this Statement will only impact the Corporation's
financial statements if it enters into a business combination.
Also in June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets," which addresses the accounting for such assets arising from prior and
future business combinations. Upon the adoption of this Statement, goodwill
arising from business combinations will no longer be amortized, but rather will
be assessed regularly for impairment, with any such impairment recognized as a
reduction to earnings in the period identified. Other identified intangible
assets, such as core deposit intangible assets, will continue to be amortized
over their estimated useful lives. The Corporation is required to adopt this
Statement on January 1, 2002 and early adoption is not permitted. The adoption
of this Statement will not impact the Corporation's financial statements, as it
has no intangible assets.
- --------------------------------------------------------------------------------
18.
DCB FINANCIAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)
- --------------------------------------------------------------------------------
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
ASSET AND LIABILITY MANAGEMENT AND MARKET RISK
The Corporation's primary market risk exposure is interest rate risk and, to a
lesser extent, liquidity risks. Interest rate risk is the risk that the
Corporation's financial condition will be adversely affected due to movements in
interest rates. The income of financial institutions is primarily derived from
the excess of interest earned on interest-earning assets over the interest paid
on interest-bearing liabilities. Accordingly, the Corporation places great
importance on monitoring and controlling interest rate risk.
There are several methods employed by the Corporation to monitor and control
interest rate risk. One such method is using a gap analysis. The gap is defined
as the repricing variance between rate sensitive assets and rate sensitive
liabilities within certain periods. The repricing can occur due to changes in
rates on variable rate products as well as maturities of interest-earning assets
and interest-bearing liabilities. A high ratio of interest sensitive
liabilities, generally referred to as a negative gap, tends to benefit net
interest income during periods of falling interest rates as the average rate
paid on interest-bearing liabilities declines faster than the average rate
earned on interest-earning assets. The opposite holds true during periods of
rising interest rates. The Corporation attempts to minimize the interest rate
risk through management of the gap in order to achieve consistent shareholder
return. The Corporation's asset and liability management policy is to maintain a
laddered gap position. One strategy used by the Corporation is to originate
variable rate loans tied to market indices. Such loans reprice on an annual,
quarterly, monthly or daily basis as the underlying market indices change. As of
September 30, 2001, $228,177, or 64.9%, of the Corporation's loan portfolio
reprices on regular basis. The Corporation also invests excess funds in liquid
federal funds that mature and reprice on a daily basis. The Corporation also
maintains most of its securities in the available for sale portfolio to take
advantage of interest rate swings and to maintain liquidity for loan funding and
deposit withdrawals.
The Corporation's 2000 annual report details a table, which provides information
about the Company's financial instruments that are sensitive to changes in
interest rates as of December 31, 2000. The table is based on information and
assumptions set forth in the notes. For loans, securities and liabilities with
contractual maturities, the table represents principal cash flows and the
weighted average interest rate. For variable rate loans the contractual maturity
and weighted-average interest rate was used with an explanatory footnote as to
repricing periods. For liabilities without contractual maturities such as demand
and savings deposit accounts, a decay rate was utilized to match their most
likely withdrawal behavior. Management believes that no events have occurred
since December 31, 2000 which would significantly change the ratio of rate
sensitive assets to rate sensitive liabilities for the given time horizons.
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19.
DCB FINANCIAL CORP.
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2001
PART II - OTHER INFORMATION
- --------------------------------------------------------------------------------
Item 1 - Legal Proceedings:
There are no matters required to be reported under this item.
Item 2 - Changes in Securities:
There are no matters required to be reported under this item.
Item 3 - Defaults Upon Senior Securities:
There are no matters required to be reported under this item.
Item 4 - Submission of Matters to a Vote of Security Holders: There
are no matters required to be reported under this item.
Item 5 - Other Information:
There are no matters required to be reported under this item.
Item 6 - Exhibits and Reports on Form 8-K:
(a) Exhibit 11, Statement re: computation of per share
earnings. (Reference is hereby made to Consolidated
Statements of Income on page 4, hereof.)
(b) No reports on Form 8-K were filed during the quarter for
which this report is filed.
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20.
DCB FINANCIAL CORP.
SIGNATURES
- --------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DCB FINANCIAL CORP.
---------------------------------------
(Registrant)
Date: NOVEMBER 13, 2001 /S/ LARRY D. COBURN
---------------------------- -------------------
(Signature)
Larry D. Coburn
President and Chief Executive Officer
Date: NOVEMBER 13, 2001 /S/ JOHN USTASZEWSKI
---------------------------- ---------------------------------------
(Signature)
John Ustaszewski
Chief Financial Officer
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21.
DCB FINANCIAL CORP.
INDEX TO EXHIBITS
- --------------------------------------------------------------------------------
EXHIBIT
NUMBER DESCRIPTION PAGE NUMBER
- ------ ----------- -----------
11 Statement re: computation Reference is hereby made to Consolidated
of per share earnings Statements of Income on page 4 and Note 1
of Notes to Consolidated Financial
Statements on page 8, hereof.
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22.